Housing Market Update Poses 'Massive Problem' for Homebuyers

US News Reporter

The continued run-up in home prices last year as the U.S. economy avoided entering a much-feared recession represents a huge increase in wealth for homeowners but a "massive problem" for first-time homebuyers, economist Mark Zandi said.

The chief economist of Moody's Analytics added that the U.S. economy had a stellar year in 2023. The latest evidence contained in the company's sales house price index for December shows that home prices were up 5 percent compared to a year before and almost 50 percent since just before the pandemic. Newsweek contacted Zandi for comment by email on Monday morning.

The report, released a few days ago, shows that house prices were up 5.14 percent in December 2023, compared to December 2022, despite stubbornly high mortgage rates and low housing affordability.

House prices dipped between late summer 2022 and spring 2023 as many homebuyers were squeezed out of the market by skyrocketing home prices and high mortgage rates; these were driven up by the Federal Reserve's aggressive interest rates hike to bring down inflation. From an historic low of 2.5 percent during the pandemic, mortgage rates are near the 7 percent mark now, according to Zandi.

However, prices started recovering at the beginning of summer 2023 as inventory remained critically low. Moody's Analytics' data shows a steady surge in home prices between June and December 2023. The document states that price appreciation was the strongest among the most-affordable homes.

Zandi wrote on X, formerly known as Twitter, that house prices are off from their all-time highs in and around Texas and the Pacific Northwest, but only modestly, while they continue to push higher in the Northeast, and industrial Midwest and Southeast. Zandi added that in Philadelphia, his hometown, house prices were up 7 percent in December 2023, compared to a year before.

"For the two-thirds of Americans who own their home, the higher prices mean a massive increase in their wealth," Zandi wrote. "But of course, this is a massive problem for potential first time homebuyers. Given the collapse in affordability, buying a home is not even remotely possible."

Increasing the housing supply is an urgently needed solution to help renters become homeowners and stabilize the housing market, according to Zandi.

"No faster way than for Congress to pass the tax legislation they are debating, which includes more support for the low income housing tax credit," the economist wrote on the social-media platform.

Democrats and Republicans in Congress have recently come together to support a $78 billion bipartisan tax overhaul—known as the Tax Relief for American Families and Workers Act of 2024. This would give a boost to the Low-Income Housing Tax Credit (LIHTC) program, which would help lower-income tenants to get on the property ladder. The LIHTC is the main federal tool for financing the development of affordable housing in the country.

The same proposed legislation would also open up more opportunities for states to build additional housing, fixing the existing gap between offer and demand.

"The expansion of low-income housing tax credit (LIHTC) in the tax legislation will result in more affordable rental housing, which will help keep rents down and allow potential first-time homebuyers to save for a down payment," Zandi told Newsweek.

"Lawmakers could and should do more to address the severe shortage of homes and the affordability crisis for homeownership," he added. "For example, lawmakers could expand LIHTC to also include affordable single-family homes for homeownership."

This, Zandi said, would provide single-family homebuilders "a meaningful tax incentive to put up more homes at price points that potential first-time homebuyers could afford."

The Moody's Analytics chief economist added that "there is no slam-dunk policy step that will solve the problem quickly. It would take a multifaceted and persistent policy response to do that."